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CNBC: China’s Fiscal Policy Adjustment Amidst Global Economic Challenges

Article published: 8 December 2023

IB Economics Syllabus: Macroeconomics (expansionary fiscal policy, economic recovery)

In a strategic response to global economic challenges, China’s Politburo has announced a moderate strengthening of its fiscal policy to bolster economic recovery, as reported by CNBC. This decision, set against the backdrop of a global slowdown and internal market pressures, marks a significant shift in China’s economic approach. It reflects a commitment to stimulating domestic demand (AD) and enhancing economic vitality in the world’s second-largest economy. The policy, which combines “proactive” fiscal measures with “prudent” monetary strategies, aims to address the complexities of declining demand for Chinese goods, internal market dynamics, and geopolitical tensions.

IB Economics (IA) Commentary Suggestions:

In your IA, consider evaluating China’s fiscal policy using macroeconomic theories such as fiscal stimulus, aggregate demand, and the multiplier effect. Focus on the potential impacts on economic recovery and stability, both in the short and long term. For diagrams, the Aggregate Demand and Aggregate Supply (AD-AS) model can be used to illustrate the impact of fiscal policy on the economy, showing how increased government spending or decreased taxes shift the AD curve rightward. Additionally, you should also show the Multiplier Effect in your diagram demonstrating how initial increases in government spending lead to a more significant overall increase in national income. The key concept to focus on is Intervention.

Source of image: CNBC/Getty images

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